CRAIG BORISON v. GIBBS GIDEN LOCHER TURNER SENET (2010)

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

I. INTRODUCTION

This is an appeal from an order denying a petition to compel arbitration of claims brought by plaintiff, Craig Borison, arising out of his employment with defendant, Gibbs, Giden, Lochner, Turner & Senet, a limited liability partnership, which is a law firm.   Plaintiff sued the firm and defendant, William Lochner, an individual, for wrongful termination and other related claims.   Defendants moved to compel arbitration of the claims.   The trial court refused to compel arbitration concluding that the arbitration agreement signed by plaintiff was unconscionable and therefore unenforceable under standards set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113-127 and its progeny.   We affirm.

II. BACKGROUND

The complaint, which was filed on January 8, 2009, contains the following allegations.   The firm initially hired plaintiff as a law clerk in April 2006 and then as an associate attorney in September 2006.   After August 15, 2007, plaintiff took time off from work to take care of his wife, who had become ill with cervical cancer.   Plaintiff returned to work on September 4, 2007.   Mr. Lochner then spoke with plaintiff.   During the meeting, plaintiff was advised he had four options:  disability;  unemployment;  unpaid Family Medical Leave Act until his wife recovered;  or become an hourly employee.   When plaintiff refused to accept any of the options as offered, Mr. Lochner began retaliating against plaintiff.   Eventually, plaintiff was terminated, according to the complaint, in November 2007 for the false and pretextual reason that he had engaged a new client in “conflict with one of” the firm's existing clients.   The true reason for his termination was that plaintiff took time off to take care of his wife.   The retaliatory conduct continued by:  demanding that plaintiff sign a separation agreement;  paying plaintiff with a post-dated check in violation of the Labor Code;  delaying written documentation of plaintiff's termination;  delaying recovery of plaintiff's personal property;  delaying plaintiff's right to review his personnel file;  challenging plaintiff's right to receive unemployment benefits by submitting a false reply to his application for benefits;  and suborning perjury in the unemployment proceedings.   The complaint contained causes of action for:  wrongful termination in violation of the California Moore-Brown-Roberti Family Rights Act (Gov.Code, § 12945.1) (first);  discrimination (second);  retaliation (third);  discrimination in violation of the Fair Employment and Housing Act (Gov.Code, § 12940 et seq.) (fourth);  retaliation (fifth);  failure to prevent discrimination (sixth);  violation of the unfair competition law (Bus. & Prof.Code, § 17200 et seq.) (seventh);  unauthorized disclosure of medical condition (eighth);  defamation (ninth);  and intentional emotional distress infliction (tenth).

On March 6, 2009, defendants filed a petition to compel arbitration.   The petition was premised on an arbitration agreement which was signed by both parties on March 30, 2006.   The arbitration agreement provided in part:  “I recognize that differences may arise between [the employer] and me during or following my employment with [the employer] and that those differences may or may not be related to my employment.   By entering into this Arbitration Agreement (‘Agreement’), I anticipate gaining the benefits of a speedy, impartial dispute-resolution procedure.  [¶] Except as otherwise provided in this Agreement, the Federal Arbitration Act shall govern the interpretation, enforcement and all proceedings pursuant to this Agreement.   To the extent, the Federal Arbitration Act is inapplicable or deemed inapplicable by any arbitrator or other tribunal, the California Arbitration Act or applicable California law shall apply.  [¶] I understand that any references to this Agreement to [the employer] will also include all benefit plans, the benefit plans' sponsors, fiduciaries, administrators, affiliates, and all successors and assigns of any of them.”

The agreement described the claims subject to arbitration:  “ [¶] 1. Claims Covered by the Agreement [¶] [The employer] and I agree that arbitration will be the exclusive, final and binding method for resolving all disputes, claims or controversies (‘claims'), past, present, or future, whether or not arising out of my employment or its termination, that [the employer] may have against me or that I may have against [the employer] or against its officers, directors, employees, or agents in their capacity as such or otherwise.   The claims covered by this Agreement include, but are not limited to, claims for wages or other compensation due, claims for breach of any contract or covenant (express or implied), tort claims, personal injury claims, claims for discrimination or harassment in employment including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, as amended, which prohibits discrimination on the basis of race, religion, color, sex and national origin, the Age Discrimination in [the] Employment Act, as amended, which prohibits discrimination or harassment on the basis of age over 40, the Civil Rights Act of 1866, the California Fair Employment and Housing Act, as amended, which prohibits discrimination on the basis of race, religious creed, color, national origin, age over 40, marital status, medical condition, physical and mental disability, sexual orientation and sex, claims under the California Labor Code including, without limitation, claims for discrimination based upon sexual orientation, wrongful termination claims of all types, claims for benefits (except where an employee benefit or pension plan specifies that its claims procedure shall culminate in an arbitration procedure different from this one or is underwritten by a commercial insurer which decides claims), and claims for violation of common law or of any other federal, state, or other governmental law, statute, regulation, or ordinance, except claims excluded in [paragraph] 2.[¶] I understand and acknowledge that by agreeing to resolve all claims, except as otherwise provided in this Agreement, exclusively through arbitration, [the employer] and I are giving up and waiving the right to initiate, prosecute and/or defend any and all lawsuits and administrative actions in the courts and before administrative agencies which are in any way related to any claim covered by this Agreement (other than administrative charges of employment discrimination to the extent required by law) and are giving up and waiving any right to trial by jury.”

The agreement also identified uncovered claims:  “[¶] 2. Claims Not Covered by the Agreement [¶] Claims for workers' compensation benefits and for unemployment compensation benefits are not covered by this Agreement.  [¶] Also not covered are claims for unfair competition and/or unauthorized disclosure of trade secrets and confidential information․”

The agreement described the controlling rules:  “5. Arbitration Rules and Procedures [¶] The arbitration shall be held under the auspices of either the American Arbitration Association (‘AAA’) or JAMS/Endispute with the designation of the sponsoring organization to be made by the party who did not initiate the claim.   Provided, however, if such designation is not made in writing and sent certified mail, return receipt requested to the party who initiated the claim within 10 calendar days of the date of receipt of the Notice set forth in Section 3, the party who initiated the claim may designate the sponsoring organization in writing and send such designation to the other party certified mail, return receipt requested.   Provided, if entities or persons together with [the employer] either initiate or are given Notice under [paragraph] 3, [the employer] and not the other entities or persons shall have the right of designation as set forth above.   In all other instances involving multiple parties initiating or receiving notice, the parties shall attempt to agree on the sponsoring organization;  if no agreement is reached, the sponsoring organization shall be chosen by lot.  [¶] Except as otherwise provided in this Agreement, any arbitration shall be in accordance with the then-current Employment Arbitration Rules of JAMS/Endispute or AAA before an arbitrator who is either a retired judge or an attorney who is licensed to practice law in the state in which the arbitration is convened (‘the Arbitrator’).   The arbitration shall take place in or near the city in which I am or was last employed by [the employer].  [¶] The Arbitrator shall render a written opinion and award.”   As to fees and judicial review, the arbitration agreement states:  “Arbitration Fees and Costs [¶] [The employer] shall pay the arbitrator's expenses and fees, all meeting room charges, and any other expenses that would not have been incurred if the case were litigated in the judicial forum having jurisdiction over it.   Unless otherwise ordered by the arbitrator, each party shall pay its own attorney fees, witness fees, and other expenses incurred by the party for his or her own benefit. [¶] 7. Judicial Review [¶] Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement and to enforce an arbitration award.   A party opposing enforcement or the substantive award may bring a separate action in a court of competent jurisdiction to set aside the award.”

Finally, the agreement states:  “8. Requirements for Modifications or Revocation [¶] This Agreement to arbitrate shall survive the termination of my employment.   It can only be revoked or modified by a writing signed by the parties which specifically states an intent to revoke or modify this Agreement․  [¶] 10.   Construction [¶] If any provision of this Agreement is adjudged to be void or otherwise unenforceable, in whole or in part, with adjudication shall not affect the validity of the remainder of the Agreement․  [¶] 13.   Voluntary Agreement [¶] I ACKNOWEDGE THAT I HAVE CAREFULLY READ THIS AGREEMENT, THAT I UNDERSTAND ITS TERMS, ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN [THE EMPLOYER] AND ME RELATING TO THE SUBJECTS COVERED IN THE AGREEMENT ARE CONTAINED IN IT, AND THAT I HAVE ENTERED INTO THE AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY [THE EMPLOYER] OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF.  [¶] I FURTHER ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH MY PRIVATE LEGAL COUNSEL AND HAVE USED THAT OPPORTUNITY TO THE EXTENT I WISH TO DO SO.”

Defendants argued that the arbitration agreement was enforceable because it:  was mutual;  provided for each party to bear its own costs;  and provided for an arbitrator by neutral means.   There was evidence two of the firm's lawyers refused to sign the arbitration agreements.   The agreements were presented to them after they had already worked at the firm.   Plaintiff opposed the petition on the ground the arbitration agreement was procedurally and substantively unconscionable under Armendariz.   Plaintiff declared that he signed the agreement while he was a law student.   The agreement was presented to him with a number of other documents.   The agreement was not explained to him.   No one ever told him that he had a right not to sign the agreement.   The human resources director, Cindy Fortune, told him that he had to sign the agreement in order to begin his job.   Christina Coleman, who is associated with plaintiff's counsel, filed a declaration about the listed arbitration forums.   Kenneth C. Gibbs, a named defendant and the senior partner in the firm, had acted as an arbitrator for the American Arbitration Association in over 100 cases.   Mr. Gibbs was also a neutral arbitrator with the Judicial Arbitration and Mediation Services/Endispute.   Joseph M. Giden, a named partner, is a panel member for the American Arbitration Association.   Theodore L. Senet and Anya Stanley were both partners of the firm as well as neutral arbitrators for the American Arbitration Association.

On May 8, 2009, the trial court denied the petition to compel arbitration finding that the one-sided provision requiring the employee to arbitrate most of her or his claims while excluding the claims typically brought by the employer was unconscionable.   The trial court further ruled that the provision was not severable from the arbitration agreement.   During argument on the issue, the trial court noted that there were a number of problems “permeating the agreement” such that it could not be reformed.   These included:  paragraph 1 which requires the employee to waive the right to pursue administrative actions with the Equal Employment Opportunity Commission, the Department of Fair Employment and Housing Authority or the Age Discrimination in Employment Act;  paragraph 5 which provides that the party that does not initiate the claim has the right to designate the sponsoring organization (in most cases the employer will be the non-initiating party with the right to make the selection);  and paragraph 6 of the agreement impermissibly will require the employee to bear the costs of the arbitration including attorney fees at the arbitrator's discretion should the employee lose.   The trial court pointed out that its decision to deny the petition was not based on these factors but the factors established that the agreement was permeated with problems.   Defendants filed a timely appeal from the order denying the petition to compel arbitration.

III. DISCUSSION

Code of Civil Procedure section 1281 provides, “A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.”   The trial court has authority to compel arbitration pursuant to Code of Civil Procedure section 1281.2.¹  Any doubts as to whether an arbitration clause applies to a particular dispute should be resolved in favor of requiring the parties to arbitrate.  (Vianna v. Doctors' Management Co. (1994) 27 Cal.App.4th 1186, 1189;  United Transportation Union v. Southern California Rapid Transit Dist. (1992) 7 Cal.App.4th 804, 808.)   However, the right to compel arbitration depends upon the existence of a valid contract between the parties.  (County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4th 237, 245;  Marsch v. Williams (1994) 23 Cal.App.4th 250, 255;  Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co. (1992) 6 Cal.App.4th 1266, 1271;  Blatt v. Farley (1990) 226 Cal.App.3d 621, 625.)   The question whether a valid agreement to arbitrate exists is determined by reference to state law applicable to contracts generally.  (Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 686-687;  Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-973;  Kinney v. United Healthcare Services, Inc. (1999) 70 Cal.App.4th 1322, 1328.)

Plaintiff has the burden to prove the defense of unconscionability.   (Engalla v. Permanente Medical Group, Inc., supra, 15 Cal.4th at p. 972;  Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1099.)   Unconscionability has both a substantive and procedural element.  (Civ.Code, § 1670.5;  Gentry v. Superior Court (2007) 42 Cal.4th 443, 468-469;  Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 160;  Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071;  Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 114;  Kinney v. United Healthcare Services, supra, 70 Cal.App.4th at p. 1329;  Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1530.)   The procedural element of unconscionability focuses on whether the contract is one of adhesion.   (Discover Bank v. Superior Court, supra, 36 Cal.4th at p. 160;  Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 113;  Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174.)   Procedural unconscionability focuses on the manner in which the contract was negotiated, the circumstances of the parties and addresses two factors;  “oppression” and “surprise.”  (Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1568;  Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1319;  Jones v. Wells Fargo Bank (2003) 112 Cal.App.4th 1527, 1539.)   The oppression factor arises from an inequality in bargaining power and the absence of real negotiation or a meaningful choice.  (Parada v. Superior Court, supra, 176 Cal.App.4th at p. 1570;  Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at p. 1532.)

The substantive element addresses the existence of overly-harsh or one-sided terms.  (Discover Bank v. Superior Court, supra, 36 Cal.4th at p. 160;  Armendariz Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 114.)  Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at pages 1071 through 1072 explained substantive unconscionability as follows, “Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.”   We agree with defendants that the issue of whether the arbitration agreement was invalid as unconscionable is a question of law requiring de novo review.  (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1468-1469;  Fittante v. Palm Springs Motors, Inc. (2003) 105 Cal.App.4th 708, 714;  Merrick Writers Guild of America West, Inc. (1982) 130 Cal.App.3d 212, 217.)

In this case, the agreement contains both procedural and substantive unconscionable provisions.   There is evidence the agreement was procedurally unconscionable in that it was presented to plaintiff, a newly hired person, on a take it or leave it basis.  (Armendariz v. Foundation Health Psychcare Services, Inc. supra, 24 Cal.4th at pp. 113-115;  McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 101;  Mercuro v. Superior Court, supra, 96 Cal.App.4th 1at p.174.) Plaintiff declared that he was told he was required to sign the agreement when he was hired.   There was evidence that two employees had worked at the law firm after refusing to sign the agreement.   But, there is no evidence that an employee would have been hired without signing the agreement.

With respect to the substantive unconscionable requirement, the agreement contains a number of provisions, which favor the employer;  the “carve-out” provision which excludes as claims unfair competition and trade secret and confidentiality claims.   These are the claims that typically would or could be brought against an employee.   Thus, the employer is free to pursue any claims it might have against the employee in a court.   By contrast, the agreement requires arbitration of practically any claim that could ever be brought against an employer (except workers' compensation, unemployment benefits and possibly an unfair competition claim).  (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 120;  Mercuro v. Superior Court, supra, 96 Cal.App.4th at p. 176.)   Thus, an employee has no similar rights and is subjected to an arbitration agreement.   The effect of the arbitration agreement is really only an agreement to arbitrate employee claims against the employer.   The one-sided provision is substantively unconscionable.  (Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at p. 1070;  Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 896;  Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1253-1254.)

There is no merit to defendants' contention that the arbitration agreement is nevertheless enforceable because certain provisions could be severed.  (See Civ.Code, § 1670.5, subd. (a);  Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at pp. 121-122.)   Here, the trial court refused to exercise its discretion to sever the unconscionable portions so as to enforce the arbitration agreement.   The trial court's determination is reviewed for an abuse of discretion.  (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at pp. 121-122;  Ontiveros v. DHL Exp. (USA), Inc. (2008) 164 Cal.App.4th 494, 502.)   As the trial court explained, the lack of mutuality in the agreement could not be stricken from the agreement.   The trial court pointed to a number of problems that permeated the agreement including:  the employer would almost always have the right to select the arbitrator;  the costs provisions;  the arbitrator has the right to decide awarding attorney fees in an Fair Employment and Housing Act claim without a legal standard;  and the agreement was drafted after a number of cases were decided including Armendariz and Mercuro.   We cannot find an abuse of discretion in refusing to sever the one-sided provisions.

IV. DISPOSITION

The order denying the petition to compel arbitration is affirmed.   Plaintiff, Craig Borison, is awarded costs incurred on appeal from defendants, Gibbs, Giden, Locher, Turner & Senet and William D. Locher.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

We concur:

FOOTNOTES

FN1. Code of Civil Procedure section 1281.2 provides in part:  “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:  [¶] (a) The right to compel arbitration has been waived by the petitioner;  or [¶] (b) Grounds exist for the revocation of the agreement.  [¶] ․ [¶] If the court determines that a written agreement to arbitrate a controversy exists, an order to arbitrate such controversy may not be refused on the ground that the petitioner's contentions lack substantive merit.  [¶] If the court determines that there are other issues between the petitioner and the respondent which are not subject to arbitration and which are the subject of a pending action or special proceeding between the petitioner and the respondent and that a determination of such issues may make the arbitration unnecessary, the court may delay its order to arbitrate until the determination of such other issues or until such earlier time as the court specifies․”.  FN1. Code of Civil Procedure section 1281.2 provides in part:  “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:  [¶] (a) The right to compel arbitration has been waived by the petitioner;  or [¶] (b) Grounds exist for the revocation of the agreement.  [¶] ․ [¶] If the court determines that a written agreement to arbitrate a controversy exists, an order to arbitrate such controversy may not be refused on the ground that the petitioner's contentions lack substantive merit.  [¶] If the court determines that there are other issues between the petitioner and the respondent which are not subject to arbitration and which are the subject of a pending action or special proceeding between the petitioner and the respondent and that a determination of such issues may make the arbitration unnecessary, the court may delay its order to arbitrate until the determination of such other issues or until such earlier time as the court specifies․”

MOSK, J. KRIEGLER, J.